Life, Software and Taxes, Part 2 – Belize
I’ve
been on a virtual tour of all offshore tax havens over the last week.
I’ve learnt a lot of interesting things, and a lot of things that could
very easily land someone in prison.
The main hurdle that I hit was on the subject of income tax. I had
originally believed that if a company were to be incorporated offshore
in a zero tax jurisdiction, then one would attract personal tax only on
funds brought into your country of residence. Not so.
I have learnt that if you maintain effective control over an offshore
company, then you must pay tax on all profits even if you do not draw
them from the company. Ouch. And kerching!
I’m not sure if that sounds a little draconian. For my limited
company here in the UK, I pay corporation tax on my company’s profits
at around 20%, and I pay no income tax on dividends up to around
£36000, then 40% on dividends thereafter. Companies, by their very
nature are treated as distinct legal entities. I’m not quite sure why a
government should be able to treat an offshore company differently.
There is an important term I used above, effective control.
It basically means that you run the company. But it seems that some
offshore tax havens have thought this through. Let me take an example.
Belize
For those of you not up on your geography, Belize is a tiny former
British colony in Central America, home to about 300,000 souls. There
are a number of things that make Belize attractive as an offshore
location. Firstly, and probably most importantly, it is a zero tax
location. The means your International Business Company (or IBC) is
exempt from tax, and because it is exempt from tax, there is no need to
keep or file accounts.
Secondly, like Switzerland, Belize has very strict banking secrecy
laws. This means that your account information can only be made
available to external agencies by way of an order from a Belizean
court. Further, a Belizean court is only likely to give external access
in the process of investigating serious international crime, and, like
Switzerland, Belize does not consider external tax evasion to be a
crime.
A word of warning though. Be careful if you live under a despotic
regime. I’m not picking on the US, but just to use them an example, the
President now has the power to declare any American citizen to be an
enemy combatant, and to lock them up without trial or due process. If
this were to happen, and a request made to Belize to hand over
information on a terror suspect’s accounts, I don’t know what would
happen.
What makes Belize interesting is the notion of nominees. When you
form an IBC in Belize, you can opt to have a nominee director,
secretary and shareholder. This means that you name does not appear on
any documents associated with the company. On paper, it’s not yours.
You can also structure your company such that on paper, you have no
access to the company bank accounts.
Sound a little like buying snake oil? Yeah it did to me too. There
are a couple of caveats here. If you are prepared to sacrifice just a
smidgen of privacy, you can arrange to have power of attorney. The
alternative is that you entrust your IBC to a Belizean professional
management company. They will, at your request, execute your wishes. It
sounds a little scary but it seems to be quite a common way of working.
The important thing here is that you do not officially own the company.
Your name appears on nothing, and it would be very difficult for anyone
to prove effective control. Your bank account is probably the most
vulnerable part of this set up, so if you’re going this route, I would
recommend having another account set up in your name (offshore) so that
you can regularly transfer money into your control.
Incorporating an IBC in Belize is very cheap. Agents like Fidelity Overseas are able to set up a company for less than $1000. Nominee directors and shareholders etc are a few hundred dollars per year.
Usual disclaimer, I’m not an accountant or a lawyer. This isn’t advice, it’s just what I’ve researched.
Are there any hollowed out volcanoes in Belize I can buy with my offshore loot?
Speaking as the founder/owner of a small software company with
global reach (we’re based in the UK with a US company to run our
operations there, and customers all around the world) my conclusions
thus far is you can either spend your time messing around in tax
evasion and corporate structure, or you can build the business.
Not that I’m saying figuring out how to save tax is a bad thing
(that’s what you have an accountant for!) but the fact is if you’re any
good at what you do (and I am sure you are) then any time you have is
better spent on your business – not on messing in high finance.
Sure, you’ll pay more tax, but you’ll make more money in total.
Ultimately the high finance game is one populated by people who do this for a living, and you (and I) are just amatuers.
We have a UK company because that’s where we live, and we’re
reasonably tax efficient. We have a US company because that’s where
half our employees and customers are, and keeping the money in the US
and paying a license fee back to the UK is much more efficient Vs the
costs of moving money back and forth across the Atlantic (although Afex
helps a lot).
Get with a good accountant, there’s more than enough opportunity to
make good use of the tax allowances available for UK companies. If
you’re making over £100k a year, you might want to look at getting more
creative but at that point there will be people more than willing to
help you and you’ll have the income to make it worthwhile.
Fact is, if you’re the principal in a business your time is better
spent growing the business, not worrying about perhipheral stuff.
Hope that’s helpful.
@Anon – I hear ya. I’m inclined to agree with the vast majority of
what you’ve said. One of the hats you’ve got to wear in this game is
that of tax mitigator, so I think it was an interesting exercise.
Unfortunately, after looking into it, there doesn’t seem to be any way
of repatriating the funds without breaking the law, I will blog the
results of this soon.